American Reprographics Company ( ARP)

Q3 2010 Earnings Conference Call

November 2, 2010 5:00 PM


David Stickney – VP, Corporate Communications

Suri Suriyakumar – Chairman, President and CEO

Jonathan Mather – CFO


Andrew Steinerman – JP Morgan

Scott Schneeberger – Oppenheimer

Brad Safalow – PAA Research

David Manthey – Robert W. Baird



Good afternoon, and welcome to the American Reprographics Third Quarter 2010 Call. My name is Christy and I will be facilitating the audio portion of today’s interactive broadcast. (Operator Instructions) Thank you.

At this, I would like to turn the show to David Stickney, Vice President of Corporate Communications.

David Stickney

Thank you, Christine, and good afternoon everyone. Today, I’m joined by Suri Suriyakumar, our Chairman, President, and Chief Executive Officer; and Jonathan Mather, our Chief Financial Officer.

Our third quarter results were summarized in a press release issued earlier today. We’ll be adding further commentary on the quarter, on our call and then we’ll move to Q&A. For your reference, you can access the press release and the company’s other release from the Investor Relations section of American Reprographics Company website at

We are web casting our call today. A replay of the webcast will be available, on our website for 90 days from today. I take the replay of this call will also be accessible by phone for seven days after the call. The dial in number for the replay is in today’s press release.

This call will contain forward-looking statements that fall within the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, regarding future events and the future financial performance of the company, including the company’s financial outlook.

Bear in mind that such statements are only predictions, and actual results may differ materially as a result of risks and uncertainties that pertain to our business. These risks are highlighted in our quarterly and annual SEC filings. The forward-looking statements contained in this call are based on information as of today, November 2nd, 2010 and except as required by law, the company undertakes no obligation to update or revise any of these forward-looking statements.

Finally, this call will contain references to certain non-GAAP measures. The reconciliation of these non-GAAP measures is set forth in today’s press release, and in our Form 8-K filing.

At this point I will turn the call over to our Chairman, President and CEO, Suri Suriyakumar. Suri?

Suri Suriyakumar

Thank you, David; and good afternoon, everyone. Once again American Reprographics performed remarkably well during the third quarter despite a market backlog to confidence as well as new construction projects. While we were disappointed in the appetite for our services, we are certainly not discouraged.

Considering the depth of the financial crisis we have experienced over the past two years, sharp turns head backs are bound to be part of any recovery. From our point of view, we must make good on the opportunities in front of us and I’m pleased to say that we did so during the third quarter.

As we noted on our October call, we continue to see stabilization in our average daily sales number month over month. The third was no exception to this trend. However, each daily sales figures from July, August and September were essentially flat with a small uptick in September.

The upside of this continuing stabilization is that it suggests we may be at the bottom of this cycle. The downside what we did not see a significant return to seasonality as we had expected. Nonetheless, ARC performance remains strong and continue to prove the strength of its operating model and the persistent of its management team.

On revenues of $109.4 million, ARC delivered $0.01 per share in the third quarter of 2010 on an adjusted basis. In spite of our revenue drop, our gross margins remain very healthy at 32%.

At the end of quarter three, we had produced $38 million in cash flow from operations for the year. This translates to $10.3 million for the third quarter. Our ability to generate cash is the core of our operational strength.

While we continue to tighten our cost structure to drive more cash to the bottom line, we are also extracting more cash from our existing operations by further leveraging our dominant position in the industry. As we expand our market share by continuing to acquire large national and global customers, we are able to compete at the entirely different levels and work with our vendors in creative and more cost effective ways.

We have cut more than $12 million of incremental cost so far this year. This is a remarkable amount given the significant cost reductions we already achieved. In addition, and as I have stated previously on several occasions, we have the ability to reduce our operating cost further by adjusting our operating footprint.

It is difficult, if difficult conditions in our end market persist, we can right size our branch network and leverage our digitally infrastructure further to balance capacity against demand. We would of course prefer to remain ready to capture market share in a recovery rather than cut too deeply, especially if recovery is on the horizon.

On top of all this, we also have a market that appears to be conducive to debt restructuring. Throughout this downturn, it has been very clear that banks and lending institutions favor companies with good management and strong cash flow. We will continue to explore our opportunities on this front as well.

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